The Passion Economy and Libra's Demise?

Off the Blocks | Vol 89, October 15, 2019

At Proteum, we partner with entrepreneurs to develop and deploy innovative products and solutions built with blockchain technology - advising them on building sustainable companies in a rapidly changing investment, regulatory and tech landscape.

Thoughts On The Passion Economy

Online marketplaces have now been around for over two decades. The simplest of these remains Craigslist which started in the mid-90s and surprisingly, without a mobile app, is still around. Over the years, the major service offerings have evolved and entrepreneurs have found ways to unbundle (for example, Airbnb, Tinder etc) and make them available on an on-demand basis (for example Uber, Instacart, Classpass etc). However, most of these services are single-dimensional and it has been hard to align users to share a common platform for multiple services. In the absence of any overlap, the consumers have ample choice but at the cost of curating their preferences across multiple apps. For entrepreneurs, it is extremely hard to break through all the fragmentation and build meaningful, sticky consumer relationships.

One reason is that most of these marketplaces have emulated our analog behavior and conveniently slapped digital tools on top of them. Few businesses come to mind that have embraced behavioral shifts with the Millenials and GenZ customers and proactively built technology to cater to them. For example, 80% Millenials will switch their financial institutions for better rewards. That speaks to their loyalty. Yet, no rewards program comes to mind that is built from the ground up, incorporating tech and business model innovation, that can cater to the demands of these savvy customers.

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Even when marketplaces such as Uber and Airbnb have acquired a sizeable and sticky customer base, their loyalty programs lack meaningful and accretive consumer engagement. Consider Uber’s loyalty program - a mix of old school cash and upgrades from a company that reinvented transportation. Uber’s program does little to drive individual activities that are profitable for the company. When Airbnb shelved its rewards program, it acknowledged:

We decided that it wasn’t differentiated enough, we didn’t have enough community involvement for us to launch it.

Almost all of the 125M service jobs in the US are vulnerable to tech or business model disruption. New tools are emerging every day that allow anyone to be an entrepreneur. Not only that, they can express themselves individually and have a greater ability to build authentic customer relationships. In the process, they are differentiating themselves from the status quo and are finding a loyal base amongst their customers. Welcome to the new Passion Economy.

While the previous generations of marketplaces were focused on physical goods and services, the passion entrepreneurs are already focused on digital goods and services. These digital products and services can be monetized globally - even though they may be preferentially launched for a smaller, local or highly engaged community. In practicing telemedicine, a doctor may never see the patient physically or be in the local area of access. Yet, the service rendered through an entirely digital experience has the potential to create a recurring encounter, transparently keeping track of the sessions and maintaining a trustworthy monetary exchange. This is where blockchain technology is starting to play a big role. The business models associated with customer interactions are undergoing a transformation and would not have been possible without the technology itself.

Traditional reward mechanisms are just cost centers masquerading as building a loyal brand following. Consumers’ only interest is to acquire more of them to get a future discount whereas the businesses running them have a perverse incentive in slowing down the rate of accumulation. There is no intrinsic value to these rewards and are worthless outside of the narrow business interests they support. However, if these rewards are thought of as digital assets, the game can be made far more exciting. For consumers, digital assets imply ownership, a more tangible way to think about their value. For passion economy entrepreneurs, this is incredibly empowering for both their businesses and consumers.

Once inside a valuation framework, rewards can spur whole new marketplaces where the users of services, can tangibly know the worth of these assets. Thus, the one-sided rewards redemption option can now be replaced with a demand and supply based two-sided network. For example, NBA’s Sacramento Kings recently launched the Kings Token, their own rewards program based on digital assets on a blockchain. As a digital asset, the Kings Token can seed entirely new experiences for the asset holders.

In our opinion, the blockchain has a role in the entire event experience, whether it’s a sports game, music festival or Broadway show.

Such tokens inherently allow their token holders an ability to facilitate secure and incorruptible peer-to-peer trades. By providing a way to create, manage, issue, access and trade digital assets that are valuable in a marketplace, this is a huge facilitator for the passion economy. Open marketplaces where these digital assets can be freely traded bring value for these entrepreneurs and creators looking to be discovered. A loosely coupled ecosystem of on-demand partners and integrated platforms will empower entrepreneurs to monetize individuality and creativity. Passion entrepreneurs will create value not by building artificial moats and walled gardens around themselves, but by thriving as interoperable ecosystems. As entrepreneurs unlock unique skills and knowledge, they will increasingly find it beneficial to augment them with a digital token and deliver a new set of experiences to their consumers.

If you’re a founder who is building for the passion economy, we’d love to hear from you. Thanks for reading.

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Now some significant news from the world this week:

  1. GovTech | Blockchain's Effectiveness Relies on Breaking Down Tech Barriers: the challenge with blockchain technology is the potential for the development of “walled gardens,” or closed technology platforms that do not support common standards for security, privacy and data exchange. 

    Leaving the walls in place would limit the growth and availability of a competitive marketplace of diverse, interoperable solutions.

    - William N. Bryan Senior Official, DHS

    The Science and Technology Directorate (S&T), the science adviser and research and development arm of the Department of Homeland Security, is pursuing two broad courses of action to encourage an open and inclusive future for blockchain technology, and paths that can be followed by any agency:

    1. We actively work with and support DHS component agencies to understand their potential use cases and help them achieve their outcomes with the necessary research and development expertise and technologies.

    2. And we support the development of globally available specifications that are open, royalty-free and free to implement to ensure interoperability across systems and prevent vendor lock-in.

      [… Read more on Fed Tech Magazine]

  2. FinTech | Vanguard Developing Blockchain Platform for $6 Trillion Forex Market: Mutual fund giant Vanguard has partnered with Nasdaq Ventures-backed blockchain startup Symbiont to develop a trading platform for the $6 trillion currency market. The new platform is part of the fund manager’s commitment to lowering the cost of investing for all investors. New York-based Symbiont actually worked with Vanguard on a project related to its index funds before the currency trading platform, helping the fund manager in 2017 streamline its index fund data collection process with its patented smart contract technology. The blockchain firm is focused on its smart contracts platform for institutional applications of its blockchain platform Symbiont Assembly to help build networks where multiple independent entities can share data and logic in real-time. [… Read more on CoinDesk]

  3. Regulations | SEC Stops Telegram's $1.7 B Token Offering: The U.S. Securities and Exchange Commission today filed an emergency action and obtained a temporary restraining order against Telegram and its subsidiary, TON Issuer Inc., halting a token sale that has raised more than $1.7 billion globally since January 2018. Telegram, a U.K.-based instant messaging platform, sought to finance the creation of the Telegram Open Network (TON) blockchain by selling digital tokens called Grams. The SEC says this represents the sale of an unregistered security.

    We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token. Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.

    - Steven Peikin, co-director of the SEC’s Division of Enforcement

    […Read more on DeCrypt]

  4. Libra | Libra Loses One More Member As Its Council Becomes Official: Facebook couldn't avoid losing another Libra Association member before it formalized the cryptocurrency's council. Booking Holding, the company behind, Kayak, and Priceline, has withdrawn from the Libra Association just before the organization's members signed the council charter, elected its Board of Directors and appointed executive team members. The move leaves 21 initial members, including Facebook's own Calibra wallet as well as Lyft, Uber, Spotify, and telecoms like Iliad and Vodafone. PayPal, eBay, Mastercard, Visa, and Stripe were some of the most prominent companies to pull out, each of them leaving within days of each other. Not that Facebook is deterred. Libra Association policy head Dante Disparte told Reuters that the departures were a "correction" and "not a setback." The outfit also touted the number of potential members that could fill the exiting partners' shoes, noting that about 180 entities met the initial membership requirements. […Read more on Engadget]

  5. Automotive | BMW, General Motors, Ford to Start Testing Blockchain Payments in Cars: Five major automakers — BMW, General Motors, Ford, Renault, and Honda — will start testing a blockchain car identification and payment system next month in the United States. The partnership aims to test the vehicle ID system developed under the Mobility Open Blockchain Initiative. As part of the project, cars are assigned digital IDs linked to ownership, service history and a wallet allowing the vehicle to automatically pay fees without specialized hardware. The alliance reportedly envisions the system being applied to connected electric vehicles so tolls, maintenance, and rest stop purchases, for example, can be recorded and paid automatically when the car is plugged in to charge its battery. […Read more on CoinTelegraph]

The Final Word | Blockchain developers announce OpenLibra, a permissionless alternative to Facebook’s Libra

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The co-founder of blockchain startup Wireline, Lucas Geiger, announced Tuesday “OpenLibra”, a permissionless fork of Libra, the controversial crypto network led by Facebook. Geiger announced the project at Devcon 5, Ethereum’s annual conference which was held in Osaka, Japan this week. The developers released a virtual machine that runs a permissionless version of Libra, called Movement, built on the Tendermint blockchain protocol. According to the firm’s website, OpenLibra is

An alternative to Facebook's Libra, that places emphasis on open governance and economic decentralization.

Amongst the issues the founders of the OpenLibra project have with Facebook’s network is that it is “distributed, but not decentralized,” that it is not permissionless, that it is without privacy guarantees, and this it is run by a “plutocracy”—a network of 27 ultra-rich companies including Mastercard, Visa, and Uber. By comparison, the OpenLibra project is run by “a loose collective of individuals.” including several employees from Wireline and Cosmos. It has no "association members", "partners", neither "employees" nor "leaders" it reads. [… Read More on DeCrypt]

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions. |  | Twitter: @proteumio | ProteumX

IKEA, Enterprise Adoption and Sacramento Kings Fan Tokens

Off the Blocks | Vol 88, October 8, 2019

At Proteum, we partner with entrepreneurs to develop and deploy innovative products and solutions built with blockchain technology - advising them on building sustainable companies in a rapidly changing investment, regulatory and tech landscape.

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News From Vottun, a Proteum Portfolio Company

(This article first appeared on Freightwaves, October 7, 2019)

In Madrid, a partnership between leading Spanish bank Banco Santander and blockchain certification startup Vottun will soon allow the city transport users to pay for their transit using a single unified digital payment system powered by blockchain. Vottun develops interoperable platforms over which blockchain applications can be built and made to interact with the distinctly different public or private blockchain networks. 

Blockchain unifying public transport payments across Madrid, Spain (Photo: Shutterstock)
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The idea is to create an application that can be used by Madrid commuters to centrally access and pay for all different modes of public mobility available within the city. The use of blockchain here is justified as it helps bolster the security behind the payment platform through its decentralized ledger technology, with Vottun promising high levels of user data security in the application. 

This is part of an initiative called Madrid in Motion, which was begun by the Municipal Transport Company of Madrid (EMT) in an attempt to digitalize the city’s transit system and bring order to the myriad of transport companies that offer services under the EMT umbrella – including the metro, buses, taxis, e-scooters, bikes, and car rentals. Currently, all these mobility types have their own applications; users have to separately install and register themselves, making processes extremely redundant. 

Unifying the system will not just help make processes more seamless for an average commuter, but will also help the government gather tremendous amounts of data on commuter transit patterns. This can be channeled to create insights on transit corridors that are frequently congested, which can be used by the city planning authorities to improve sections that need added transit options. 

Vottun’s proposal on a unifying transport application won in a startup competition conducted by Madrid in Motion; it was chosen from among 300 such proposals. During its presentation, Vottun allowed attendees to test its product features like facial recognition and biometric payment gateways for EMT buses. 

The user registration and validation system will be unique in all mobility services in Madrid because of the EMT app. This will facilitate the use of any mobility service to the citizen, and the payment in a simple and transparent way.

- Luis Carbajo, CEO of Vottun. 

Before Madrid, there have been a few instances where public transport networks are leveraging the potential of blockchain to improve commuter interaction. Argentinian state public transport card SUBE was in the news earlier this year, when it announced a partnership with Bitex, a blockchain financial firm, for introducing the option of paying for services through bitcoin cryptocurrency. 

Though this is not necessarily innovation in itself, it is a decisive move towards a greater understanding of the technology and to promote it across different avenues. SUBE cards are used by over seven million people in 37 locations in Argentina, to travel in trains, trams, and buses. 

The Brazilian city of Fortaleza has also jumped onto the blockchain bandwagon, announcing that it will allow commuters to pay for bus tickets by bitcoin and other cryptocurrencies alongside conventional card payments. Users of the city transit app can pay through their smartphones through which they will get a QR code that they can scan as they get aboard a vehicle. 

Now some significant news from the world this week:

  1. Finance | Morningstar Is Building A Blockchain Bridge To The $117 Trillion Debt Securities Industry: Morningstar Credit Ratings is making a number of previously unknown moves into the burgeoning industry of assets issued on a blockchain. Morningstar is working on two efforts designed to change the way debt securities are rated on a blockchain. The first will put Morningstar’s system for rating bonds directly on the ethereum blockchain and eventually on other blockchains. The second blockchain product is also for debt securities, but involves Morningstar making available the quantitative rating models it uses internally on a blockchain. Morningstar and other credit agencies use these models to determine the creditworthiness of debt securities. While the models themselves won’t likely run on a blockchain anytime soon due to slow settlement times, the inputs and outputs of the model could be logged on the public blockchain, making it easier for investors to test the quality of an investment on their own, but still for a fee. […Read More on Forbes]

  2. Enterprise | Unleashing the Power of Blockchain in the Enterprise: Blockchain will work much better for enterprise strategy implementation when enterprise leaders work together on blockchain — specifically on blockchain governance, meaning the stewardship of this distributed ledger technology through its phases of development. They must reach consensus on several types of issues — such as systems integration and scalability — but two in particular are critical to adoption: standards and the governance of change. Enterprise executives exploring blockchain can’t leave these solely to the technologists; these issues require industry expertise from stakeholders around the world. [… Read more on MIT Sloan Management Review]

  3. Retail | IKEA Next to Embrace Ethereum Blockchain: Despite a relatively harrowing price performance this year, Ethereum seems to be going mainstream. Per the release, an Icelandic branch of the Swedish furniture retailer has used “Tradeshift’s platform and smart contracts” built on the Ethereum blockchain to settle an invoice with Nordic Store, a more local retailer that purchased IKEA goods. Interestingly, the transaction was not settled in Ether, but in “Monerium’s programmable digital cash.” Monerium is a fintech startup backed by Ethereum development studio ConsenSys. The upstart is notably the first electronic money institution that has been approved by the Financial Supervisory Authority of Iceland. [… Read More on Blockonomi]

    As the first company authorized to issue e-money on blockchains, we are delighted to demonstrate the benefits of blockchains for mainstream B2B transactions using a legal form of digital money”

    - Sveinn Valfells, CEO, Monerium

  4. Tokenomy | NBA’s Sacramento Kings to Reward Loyal Fans With Crypto Tokens: The NBA’s Sacramento Kings are the first U.S. professional sports team to develop a crypto token for fan rewards. The token, called Kings Token, will pair with a predictive gaming platform the team has developed in anticipation of the legalization of sports betting in California. Kings Tokens will exist within a token wallet added to the team’s Golden 1 Center app, which tracks the engagement and accumulated points of fans. Fans can earn rewards through the predictive gaming platform and redeem those points for access to unique events, signed merchandise or courtside tickets, for example. The ERC-20 token will run on ethereum but will only initially be usable within the team’s Golden 1 Center arena. While fans won’t be able to trade the token for another currency or have a private key, they will be able to show a QR code to redeem points and see the confirmation of transactions through a block explorer. [… Read More on Coindesk]

  5. Currencies | German Finance Minister Supports Digital Euro, But ‘Very Critical’ of Libra: Germany’s federal finance minister has come out in support of digitizing the euro, but is against private currency projects like Facebook’s Libra. Speaking with local business news source Wirtschafts Woche, Minister Olaf Scholz said he remains “very, very critical” of Libra. However, an e-euro would be good for Europe’s financial system, particularly in the wake of economic globalization. Echoing other European leaders, such as French finance minister Bruno Le Maire who said France would block Libra, Scholz argued that the power of currency issuance should reside in the hands of the state, saying:

    Such a payment system would be good for the [European] financial center and its integration into the world financial system. We should not leave the field to China, Russia, the U.S. or any private providers. A core element of state sovereignty is the publication of a currency, we will not leave it to private companies.

    - Olaf Scholz, German Federal Finance Minister

The Final Word | Now Traders Can Make Bets on When Facebook’s Libra Will Launch

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Crypto futures exchange CoinFLEX is issuing derivatives linked to the launch of the Facebook-led Libra cryptocurrency project. Dubbed an Initial Futures Offering (IFO), the exchange launched similar derivatives products for both the blockchain interoperability project Polkadot and cloud computing network Dfinity before their mainnets were live. The Libra IFO, a physically settled product, allows investors to bet if Libra will launch before the settlement date of Dec. 30, 2020. The futures product will be available Oct. 24 and will pay out in Libra tokens. Libra’s launch date – originally slated for early 2020 and now looking more like the end of the year, if not much later – has been pushed back following regulatory backlash and partner exits, such as PayPal’s departure this past week. Some nation’s lawmakers have even called for the project to behalted.

Facebook has the ability to rival the entire global banking system from day one, but, because of that fact, when that first day will be is far from certain. The political backlash has been brutal, and it’s anyone’s guess if Facebook will get this over the line.

- Mark Lamb, CEO, CoinFLEX

Prices for the futures are set at $0.30, which equates to a 30 percent likelihood of Libra launching by the settlement date, Lamb explained. If Libra launches, future holders get a nice bonus for their faith in the project. [… Read More on Coindesk]

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions. |  | Twitter: @proteumio | ProteumX

EOS/SEC Settlement and Consumers Are Embracing Tokens

Off the Blocks | Vol 87, October 1, 2019

At Proteum, we partner with entrepreneurs to develop and deploy innovative products and solutions built with blockchain technology - advising them on building sustainable companies in a rapidly changing investment, regulatory and tech landscape.

Give a gift subscription will pay SEC $24 million to settle EOS ICO charges

(This story first appeared on Ledger Insights on October 1, 2019)

(The complete SEC order instituting cease and desist proceedings pursuant to Section 8A of the Securities Act can be found here.)

Yesterday, blockchain firm announced it settled a dispute regarding an initial coin offering (ICO) with the U.S. Securities and Exchange Commission (SEC). Under the settlement agreement, agreed to pay $24 million to the SEC. However, the EOS crypto maker did not admit or deny any infractions as per the SEC findings.

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The settlement concerns an ERC-20 token sold via the Ethereum network between June 26, 2017, and June 1, 2018. The SEC stated that the token was not registered as a security before sold about 900 million units raising in the region of $4 billion, the largest ICO to date. It also said that continued to sell the token for nearly a year after SEC released the DAO Report of Investigation which clarified the SEC’s position that most ICO issuances are securities. Without an exemption from registration requirements, the ICO had come under the SEC scanner.

A number of US investors participated in’s ICO. Companies that offer or sell securities to US investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.

- Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement

Meanwhile, said the SEC granted it a waiver, so the company is not subject to certain restrictions surrounding this sort of settlement. However, the company did not provide any further details.

“We are excited to resolve these discussions with the SEC and are committed to ongoing collaboration with regulators and policymakers as the world continues to develop more clarity around compliance frameworks for digital assets,” said in its announcement. added that the concerned ERC-20 token is now out of circulation and will not be required to be registered as a security with the SEC. It no longer exists because Ethereum tokens were converted to native tokens on the EOS network.

Some think the $24 million payment is quite small at roughly 0.6 percent of the funds raised.

The SEC has previously cracked down on other ICOs. A few months ago, the SEC sued Kik Interactive for an alleged illegal $100 million ICO.

Now some significant news from the world this week:

  1. Tech | Ethereum Expands Blockchain Capacity By 25%: Ethereum’s network capacity has been expanded by the mining community to allow more transactions to be processed on the network per second. This is in light of increased traffic on the network, largely due to controversial stablecoin Tether and a gambling game called Fair Win. Today, miners continued to drive up the gas limit, causing it to break above 10 million per block, an increase of 25 percent over the last week. This means each Ethereum block can now include roughly 25 percent more transactions than they could the week before. This allows the Ethereum network to process more transactions per second, helping to keep fees lower. But, it does mean the blockchain will get bigger more quickly, making it more expensive and difficult for nodes to keep running the network. [… Read More on Decrypt]

  2. Real Estate | Five Things To Know About Blockchain And CRE: Blockchain technology is making headlines—and it isn’t just hype. With the potential to digitize and accelerate the CRE investment process, blockchain is poised to transform CRE finance. Blockchain and the related technology of the digital security token can deliver CRE transactions with speed, security, transparency and efficiency—and the ever-important securities regulatory compliance. […Read More on RE Journals]

  3. Commerce | Consumers Are Embracing Making Purchases With Blockchain Tokens: Consumers of all age groups are increasingly willing to buy things with tokens, according to a blockchain survey by KPMG. That bodes well for cryptocurrency tokens based on blockchain, the transparent and secure decentralized ledger technology. Many investors and entrepreneurs in the industry hope tokens will transform commerce. The findings highlight the strategic business value of blockchain infrastructure and the opportunities for businesses to leverage the technology for transparent, immutable, and frictionless transactions. [… Read More on VentureBeat]

    Tokenization is ushering in the next generation of commerce. It provides inspiring new ways to classify value, either by creating new assets or reimagining traditional ones, sustained with the security and transparency of blockchain. Businesses that take advantage of tokenization can open the door to entirely new process improvements, revenue streams and customer engagement opportunities.

    - Arun Ghosh, KPMG U.S. blockchain leader

  4. B2B Payments | FIs Look Inward For Faster Blockchain Deployment: Though the manic blockchain hype of 2018 has died down somewhat, FinTechs, banks and corporates continue to collaborate and innovate as they develop distributed ledger technology solutions for a range of use cases, including faster cross-border transactions. Gradually, real-world applications are launching, and service providers have begun testing their new solutions. However, progress remains slow, not least of all because the stakes can be high: With so many financial institutions participating in a consortium or pilot, inter-functionality becomes more complex, while the demand to manage many (sometimes differing) end-user demands also adds complication. Not to mention, security similarly becomes a heightened risk as participants open up their systems. [… Read More on PYMNTS]

  5. AgTech | Ant Financial Wants To Put Agriculture On Blockchain: China’s fintech giant Ant Financial has partnered with German pharmaceuticals company Bayer Crop Science in a project that intends to put agriculture on the blockchain. The partnership will seek to develop a blockchain-powered system for the tracing of agricultural products. The use of blockchain in agriculture has continued to grow, with provenance solutions enabling consumers to trace the source of their foods. Ant Financial intends on becoming part of this movement, with the proposed system promising to improve efficiency in the agriculture industry, boost farmer income and ensure the highest quality of food products in the market. […Read More on CoinGeek]

The Final Word | This North Syrian School Is a Baby Step Toward a Blockchain Society

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“It’s a first for Rojava and a first for the Middle East.”

That’s how 22-year-old programming student Mohamed Abdullah describes the Open Academy – a new school in North Syria, a de-facto autonomous region also known as Rojava. The Open Academy is tackling one of the region’s greatest hurdles: the lack of education for young people as result of the Syrian Civil War. North Syria achieved partial autonomy from Damascus in 2012. Since then, it has pioneered a form of government known as democratic confederalism and led the offensive against ISIS, the militant jihadist group that once held huge portions of Iraq and Syria. North Syria has been researching how technologies such as blockchain could complement its societal model, which is built on an ethos of decentralization. Many of the students of the Open Academy are curious about bitcoin and blockchain, believing it offers dependability after years of turmoil.  [… Read More on Yahoo!]

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions. |  | Twitter: @proteumio | ProteumX

Lightning Network, Verizon's Blockchain SIM and Kik Shuts Down

Off the Blocks | Vol 86, September 24, 2019

At Proteum, we partner with entrepreneurs to develop and deploy innovative products and solutions built with blockchain technology - advising them on building sustainable companies in a rapidly changing investment, regulatory and tech landscape.

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The Lightning Network

The Lightning Network went live early last year with an aim to improve the throughput and latency of transactions on the Bitcoin blockchain. It is a "Layer 2" payment protocol that can enable fast transactions between participating nodes. Essentially, it features a peer-to-peer system for making micropayments of cryptocurrency through a network of bidirectional payment channels without delegating custody of funds. It utilizes the blockchain as a fall back layer, while facilitating “off-chain” settlement. As a result, the latency for a transaction is linear to actual network delay and the number of bilateral payment channel hops along the path that connects the end-points of the transaction.

If a payment transaction is confirmed by the underlying parties then the ledger eventually records “gross” settlement transactions between the parties in the path of the payment transaction that are consistent with it. No record of a specific payment transaction ever appears on-chain. Therefore, the number of lightning transactions that can be exchanged can reach the maximum capacity the network allows between the parties, without being impeded by any restrictions of the Bitcoin protocol. […Read More Here]

In order to create a transaction, a payment channel is opened by committing a funding transaction to the Bitcoin blockchain (Layer 1). This is followed by making a number of Lightning transactions that update the tentative distribution of the channel's funds without broadcasting to the blockchain. When the channel is closed, the final version of the transaction to distribute the channel’s funds is broadcast to the blockchain.

As of today, the Lightning Network has 9981 nodes with a network capacity that secures about $8M in real money.

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However, until recently, Lightning had not been tested mathematically by way of formal security. A recent paper by researchers Aggelos Kiayias and Orfeas Litos at The University of Edinburgh throws some much needed light on this. Titled, “A Composable Security Treatment of the Lightning Network”, the conclusions of the research bode well for the adoption of Lightning Network. In short,

All the security-critical parts of the system are rock-solid.

An honest participant of lightning network can only lose their money if the signatures or the hash function used by bitcoin are broken.

The main result is that lightning network is as secure as bitcoin.

- Orfeas Litos

It should be noted that the research applies to the specifications of the Lightning protocol and not to any implementation of it - a subtle yet important distinction.

Startups building on top of the Lightning Network are starting to gain traction as well. Bottle Pay just raised a $2M to bring its vision of bitcoin payments to life. Previously, Shopify had announced that the e-commerce platform features a Bitcoin mainnet and Lightning Network plug-in for its more than 500,000 merchants. According to Bitcoin Magazine, Shopify is working with OpenNode - which has also integrated with other e-commerce gateways OpenCart, PrestaShop and WordPress’ WooCommerce. In addition to being in step with the Lightning Network’s growth, these integrations fit into the growing trend of bitcoin acceptance by merchants and buyers as a payment option. According to Chainalysis, this figure has increased from $10 million in monthly payments to $150 million in six years.

The ecosystem building around the Lightning Network is picking up steam and holds promise.

Now some significant news from the world this week:

  1. Finance | BIS Paper Makes Case for ‘Embedded’ Regulation in Blockchain Markets: Research from the Bank for International Settlements (BIS), often dubbed the “bank for central banks,” has come out in favor of building regulation into blockchain-based financial markets. A working paper authored by Raphael Auer, a BIS economist, suggests that blockchain and digital ledger tech (DLT), alongside asset tokenization, bring new ways for watchdogs to monitor financial risks. Blockchain, Auer says, enables the decentralized trading of asset-backed tokens, as well as solving financial problems using self-executing smart contracts. The tech also opens up the possibility of “embedded supervision,” – a regulatory framework that allows regulators to automatically monitor a tokenized market by reading its ledger, “thus reducing the need for firms to actively collect, verify and deliver data.” However, for that to happen, regulators need to be sure the market data on a distributed ledger is trustworthy. [… Read More on Coindesk]

  2. Automotive | Indian Car Manufacturer Tata Motors Calls for Automotive Blockchain Tech: Indian automobile manufacturer Tata Motors wants to integrate blockchain solutions into its internal processes as part of a newly launched program for startups. Tata Motors has rolled out a program for startups dubbed “Tata Motors AutoMobility Collaboration Network 2.0,” through which it intends to develop a range of industry-related products, including artificial intelligence and blockchain-enabled solutions. The firm wants to apply blockchain-based solutions in various aspects of the automotive industry, including parking marketplace, demand prediction algorithm and real-time monitoring of fuel quality. [… Read More on CoinTelegraph]

    Today, almost every segment of the automotive value-chain is required to drive its own innovation story. [...] In the current age of uncertainty and speed of change, the above effort of sourcing solutions will need to be driven both through in-house initiatives as well as collaborating with external partners.

    - Shailesh Chandra, president of electric mobility business and corporate strategy at Tata Motors

  3. Tokenization | Binance Picks Apart Santander’s “Blockchain Bond”: Another reason why Santander can’t really be said to have “issued” the bond, according to Binance Research, is because it was trading tokens that represented $20 million US, rather than trading “native” securities on Ethereum, according to Binance Research.  The process was as follows: the issuer minted the tokenized money in ERC-20 tokens, and then sent those over to the customer. The fiat money was moved to an off-chain custody account. So when the customer received the tokenized money, they redeemed it to the fiat money held in the off-shore account. But—in the same way that crypto debit cards are a cop-out—this wasn’t really a blockchainified bond. In essence, they ran two processes in parallel rather than integrating it all into blockchain. [… Read More on Yahoo!]

  4. Telecom | Verizon taps blockchain technology to replace SIM cards: The Telecommunications beast Verizon was awarded a patent by the United States Patent and Trademark Office (USTPO), for a system that uses blockchain to create virtual SIM cards. According to the patent, the system’s blockchain would associate a virtual SIM card, or “vSIM”, with a particular user account and then activate the SIM card on a device. The device on which the vSIM card was activated would then send a signal back to the blockchain, confirming activation. […Read More on DeCrypt]

  5. Banking | What Billions in Fed Repo Injections Reveal About the Promise of Bitcoin: Last week, the Federal Reserve injected $278 billion into the securities repurchase, or “repo,” market over four days, all so that banks could meet their liquidity needs. It was the first time the Fed had intervened in this vital interbank market, where banks’ pawn financial assets to fund overnight cash needs, since the financial crisis of 2008. Fed officials and bankers dismissed the rare liquidity breakdown as a hiccup stemming from a series of coincidental factors in bond markets and corporate tax payments. It wasn’t a very comforting explanation, not when other economic warning signs are flashing, too: $17 trillion in bonds worldwide showing negative yields; a worsening U.S.-China trade war; and manufacturing indicators signaling an impending global recession. Predictably, certain crypto types have viewed this alarming scenario with glee. More than a few HODLing tweeters responded to the repo story with two words of advice: “buy bitcoin.” [… Read More on Coindesk]

The Final Word | Kik Shutting Down Popular Messaging App Due to ICO Legal Battle

Kik Shutting Down Popular Messaging App Due to ICO Legal Battle

The Canadian social media and messaging app company Kik is considering shutting down its popular Kik messaging app. Kik CEO, Ted Livingston said that Kik’s decisions to downsize and shut down its messenger were the result of the firm’s need to manage resources in a legal battle with the United States Securities and Exchange Commission (SEC). Kik has been fighting its initial coin offering’s designation in court ever since the SEC sued the Canadian startup for an allegedly unregistered $100 million token offering.

Going forward our 19 person team will be focused on one goal: getting millions of people to buy Kin to use it. We aim to achieve this goal by executing a three part strategy:

  1. Moving the Kin blockchain forward to support a billion consumers making a dozen transactions a day with sub 1 second confirmation times

  2. Accelerating the adoption, growth, and success of all developers in the Kin Ecosystem

  3. Building a mobile wallet that makes it easy to buy Kin, exciting to use Kin, and seamless to explore the Kin Ecosystem

    - Ted Livingstone, CEO, Kik

[… Read More on CoinTelegraph and Kik Blog on Medium]

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions. |  | Twitter: @proteumio | ProteumX

Hedera is Live, R3 + Mastercard and Music Tokens

Off the Blocks | Vol 85, September 17, 2019

At Proteum, we partner with entrepreneurs to develop and deploy innovative products and solutions built with blockchain technology - advising them on building sustainable companies in a rapidly changing investment, regulatory and tech landscape.

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The Enterprise is On The Move

Hedera Hashgraph, a high-speed alternative to blockchains launched today. Notably, the hashgraph is a variation of a standard blockchain - operations are not recorded as a chain, but as a directed acyclic graph (DAG). And the core tech is not open source, but patented.

It’s a different data structure, different technology and looks nothing like a blockchain, but solves the same kinds of problems with better security and better performance.

- Mance Harmon, CEO, Hedera

Hedera seems to have solved a major bottleneck related to transaction speeds. While regular blockchains are a couple of gigabytes large, the hashgraph is smaller because it does not store all transaction history on the ledger (though it can be optionally stored on a “mirror” network).

Additionally, Hedera boasts marquee enterprise names such as IBM, Boeing, Deutsche Telekom, Tata, Nomura and FIS as members of the governing council, who will participate in running the nodes and vote on major governance decisions. Absence of a strong, fair governance structure thus far has been a limiting factor for CIOs seeking to derive full value from blockchain solutions.

All of this bodes well for enterprise adoption.

In fact, the recently released Gartner hype cycle map for blockchain and distributed ledger indicates that the business impact of blockchain will be transformational across most industries within five to 10 years. 60% of CIOs said that they expected some level of adoption of blockchain technologies in the next three years.

One aspect of blockchain that clearly resonates with enterprises is the factor of trust. Native audit trails built into blockchain solutions provide an extra layer of trust that would ordinarily require significant coding effort for a simpler relational database based implementations. This impacts performance and makes the system less agile when integrating with technology cycles and upgrades.

According to a Deloitte survey, the top challenge, as seen by 48% of CIO respondents revolves around uncertain regulations, although this concern appears to have reduced in 2019. An additional concern revolves around sensitive data and intellectual property, a concern that appears to have grown in 2019. There is ample evidence that governments, worldwide, are taking measures to not thwart the growth of private, permissioned blockchains. On the flipside, most enterprises, across all industries, are well aware of the benefits afforded by blockchain technology and have started taking steps to push for moving their projects from the R&D and pilot stages to live implementations. The winning approach seems to be to go to market as an ecosystem play, rather than do it alone.

Now is the time for any organization that wants to help shape the role of blockchain and the DLT technology at play in their business and their industry to get involved. Bitcoin made blockchain mainstream and brought the hype to the field. Now the hype is passing, and we are observing how enterprises are looking at real life solutions using blockchain.

- Marta Piekarska-Geater, director of ecosystem at Hyperledger

Now some significant news from the world this week:

  1. Regulations | OKEx Korea Delists Monero, Dash, Privacy-Cryptos Over FATF Demands: The South Korean arm of cryptocurrency exchange OKEx is removing support for five major altcoins due to new international regulations. The reason, said the exchange, is that as since they are focused on privacy, the coins fall foul of new guidelines set out by the intergovernmental body the Financial Action Task Force, or FATF.

    Support for trading of 5 different cryptocurrencies, XMR, DASH, ZEC, ZEN, SBTC, will be terminated

    The sweeping changes to crypto transaction rules demand businesses to identify the two parties sending funds to each other if a transaction is worth more than around $1,000. More than 200 countries should theoretically implement the rules by June 2020, despite concerns that doing so is physically impossible for many decentralized blockchains. The five cryptocurrencies outlined by OKEx all make it all but impossible to identify the sender and recipient of a transaction by design. [… Read More on CoinTelegraph]

  2. Payments | Mastercard, R3 to Develop Blockchain Cross-Border Payments Platform: Payments giant Mastercard is to develop a blockchain-powered cross-border payments platform in partnership with enterprise-focused blockchain firm R3. Mastercard said the two firms have inked a deal to “develop and pilot” the payments solution. It will initially be aimed at connecting faster payments schemes and banks backed by Mastercard’s clearing and settlement network. The platform will be built on Corda Enterprise, the commercial version of the platform, as opposed to the open-source Corda Network, R3 told CoinDesk. The partnership is planned to merge R3’s expertise at developing blockchain solutions with Mastercard’s existing payment systems and network. Ultimately, the firms hope the new platform will help tackle industry issues such as costly payments processing, liquidity management and a paucity of standardization and connectivity between banks and domestic clearing systems. [… Read More on Coindesk]

  3. Music | Warner Music to Build Token on New Blockchain by CryptoKitties Creator: Warner Music has joined an $11.2 million investment in CryptoKitties creator Dapper Labs in order to collaborate on the deployment of the company’s new blockchain network called Flow as well as building tokens on top of it. While Warner has reportedly invested less than $1 million in the form of a convertible security, other contributors included major industry investors such as Andreessen Horowitz, Digital Currency Group, Union Square Ventures, and Venrock. Bronikowski reportedly hinted that the new investment intends to unlock a new method for sharing Warner Music’s content as well as a new type of engagement with artists. the first round of fundraising will be spent exclusively on finishing the Flow blockchain and building apps on it, while the accredited investors will receive a cut of company stock. The investors will also have a bonus option to convert the securities into tokens that can be spent on the network as soon as the firm gets regulatory approval from the United States Securities and Exchange Commission. [… Read More on CoinTelegraph]

  4. Health and Wellness | Blockchain health app Lympo secures partnership with Harmony: Blockchain-based health app Lympo has secured a partnership with Harmony, a scalable blockchain consensus platform. Lympo, which is currently available in the US and South Korea, rewards users in the form of LYM tokens for exercising and completing fitness-related challenges. It has gained more than 260,000 users in just eight months. Previously, Lympo had secured a partnership with Samsung Health that would allow users to withdraw LYM tokens directly to Samsung’s blockchain wallet. […Read More on Yahoo! Finance]

  5. Banking| Deutsche Bank joins JPMorgan’s blockchain-based Interbank Information Network: Deutsche Bank has joined banking rival JPMorgan's Interbank Information Network, a blockchain-based network comprised of over 60 banks, according to a Financial Times report.  The IIN allows member banks to exchange information related to international payments on a blockchain. Up until this point, most of the members of the network have been smaller banks and clients of JPMorgan. 

    Having Deutsche join — and hopefully Deutsche will be the first of several other large banks — is going to help us drive towards ubiquity and ubiquity is a prerequisite for the success of the network

    - Takis Georgakopoulos, head of payments, JPMorgan

The Final Word | The First Yearlong ICO for EOS Raised $4 Billion. The Second? Just $2.8 Million

Image Source

New cryptocurrencies aren’t raising money like they once did, even during marathon sales.In the first half of 2018, the average initial coin offering (ICO) raised $25.5 million, based on data reported by PwC. The biggest ICO of them all, the yearlong EOS offering, closed during that era and raised a whopping $4.1 billion. But a second ICO that aimed to make EOS more usable and also opted for a yearlong approach hasn’t drawn as much investor interest. LiquidApps is building a second-layer solution for EOS that runs on the company’s DAPP token, which has been sold in daily auctions since February 2019. At the end of its 233rd auction cycle on Aug. 19, the DAPP sale had raised just $2.8 million worth of cryptocurrency.

If $4 billion was not enough to yield an EOS network that is functioning smoothly, the thing to do is not to seek additional funds for more work in the same vein, but to question what went wrong with the original design of the RAM market in EOS

- Emin Gün Sirer, Professor, Cornell University & CEO AVA Labs

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions. |  | Twitter: @proteumio | ProteumX

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